General Motors’ Strong Performance Masks a Significant Challenge
Despite a stellar 2024, with sales consistently exceeding Wall Street estimates and a 48% gain in stock price, General Motors faces a major obstacle that investors cannot ignore: its struggles in China.
A Brutal Price War in China
China’s auto industry is in the midst of a fierce price war, driven by the rapid growth of domestic automakers and a focus on electric vehicle (EV) technology. According to the China Passenger Car Association, Chinese automakers now account for approximately 70% of the Chinese market, up from 38% just five years ago. The government’s subsidies and support for the EV industry have created a crowded and competitive market, forcing foreign automakers to slash prices and offer discounts to maintain market share.
GM’s China Woes
General Motors has been particularly hard hit, with sales in China down 19% through the first nine months of 2024, resulting in a loss of $347 million on its Chinese joint ventures. This trend has been ongoing since 2019, as shown in the graphic below.
A Plan to Turn Things Around
However, General Motors is not giving up on China without a fight. Late in 2024, the company announced plans to record two noncash charges totaling over $5 billion on its joint venture in China. These charges will reduce net income but not adjusted results, which are key figures for Wall Street analysts. GM is working to turn around its former profit engine with significant reductions in dealer inventory and modest improvements in sales and market share.
A Bright Spot in North America
Despite its struggles in China, General Motors’ North America operation is thriving, enabling the company to raise financial guidance throughout 2024, sell more vehicles that people actually want to buy, and vigorously buy back shares. The stock trades at a paltry price-to-earnings (P/E) ratio of 5, making it an attractive option for investors.
Don’t Miss Out on This Opportunity
While China may be a drawback for General Motors shareholders, the Detroit automaker is still one of the top industry stocks to own right now. With its strong performance in North America and plans to turn around its Chinese operations, GM is worthy of a closer look. If you’re worried about missing out on the next big opportunity, now may be the perfect time to invest.
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